**Standard Sport** understands Chelsea are confident of getting the deal done after emerging as the frontrunners ahead of Manchester United, who are also keen on signing Alao and have held negotiations with the Championship’s bottom club.
The initial fee paid to Wednesday for the teenager is expected to be around £500,000, but add-ons could see the eventual fee surpass the £1million mark.
Chelsea have a youth-focused transfer strategy and it is likely that Alao would initially become a player for their development squad.
A previous bid of £450,000 by United is believed to have been rejected by Wednesday before Christmas.
Alao, who has also attracted the interest of Liverpool, is a product of the Wednesday academy and made his senior debut against Bolton in the Carabao Cup in August at the age of 16. He has made two appearances in the Championship this season.