Ovo’s founder, Stephen Fitzpatrick, is preparing a purchase of Shell Energy Retail that would allow the company to overtake rival Octopus Energy and reclaim the number two position on the UK residential supply market.

Ovo Energy plans to acquire Shell‘s UK residential gas and electricity business to restore the number two position on the British market.

Ovo is expected to make an indicative offer for the UK operation of Shell Energy Retail Limited (SERL), which serves 1.4 million energy customers.

According to sources, a proposal will be submitted on Wednesday to satisfy an informal deadline by Lazard, which is managing the process on behalf of Shell.

If successful, it will increase Ovo’s customer base from approximately 4 million UK households to 5.4 million, nudging it ahead of Octopus Energy, which now has close to 5 million household customers following its acquisition of the nationalised supplier Bulb.

According to industry insiders, Centrica, the owner of British Gas, has also considered a bid for the SERL division.

Such a move would be controversial since it would result in a huge increase in market share for the industry’s dominant company. Centrica was also implicated in a scandal involving the forced installation of pre-payment metres during the cost-of-living crisis, which infuriated legislators regarding the company’s actions and the scrutiny of the practices by regulator Ofgem.

Octopus Energy is rumoured to be a less probable bidder for SERL. However, a bid from the company is possible. In recent months, the industry’s largest players have been embroiled in a fierce dispute over the takeover of Bulb, with a consortium of suppliers led by Centrica challenging the sale in court. As wholesale gas prices have continued to decline, it is now anticipated that the bailout of Bulb will cost significantly less than the multibillion-pound sum originally anticipated.

Ovo was one of the competing bidders for Bulb, whose demise in November 2021 was the most notable of dozens of supplier failures.

Ofgem has been heavily criticised for licencing new market entrants and has pledged to change the process. Shell announced in January that it would assess its residential energy delivery operations in the UK, Germany, and the Netherlands. It has a significantly lower presence in the latter two markets than in the UK. According to sources, Shell is also eager to sell its broadband client book in the UK, which contains approximately 500,000 consumers.

Ovo Energy has no presence in the UK broadband sector and would seek a partner to acquire this portion of the Shell business.

Stephen Fitzpatrick, the founder of Ovo, surrendered its internet user base to TalkTalk in 2019 when he made a deal to revamp the company by acquiring the domestic energy unit of SSE. As of Wednesday, it remained to be seen whether Ovo would use current financial resources to fund an acquisition of Shell’s UK arm or whether it would need to raise new equity or debt.

Recently, Ovo became the first large provider to provide a fixed tariff below the industry pricing cap and pass savings on to customers. It also introduced the cheapest electric vehicle rate on the market, at 3p per mile. A spokesperson for Ovo declined to comment on the company’s desire to acquire the Shell business.

Shell and Centrica also declined to respond.