Prime Minister Malcolm Turnbull has directed the Australian Competition and Consumer Commission to conduct an inquiry into electricity retailer behaviour as well as contracts offered to residential and business customers.

"Competition in retail electricity markets should mean lower prices for residential and business consumers. However, retail electricity markets don't appear to be operating as effectively as they could," Mr Turnbull said.

???"A better deal in electricity is vital to keeping the lights on, delivering cheaper prices to families and businesses and sustaining jobs, particularly the thousands of jobs in our energy intensive industries."

Mr Turnbull will use the announcement to turn the political focus back to energy policy during the final week of Parliament before the May budget.

The government has issued the directive under a special section of competition law that gives the ACCC the power to demand information. That will make it easier to find out what's going on in the market and to assess whether there is a case for further intervention or use of the ACCC's broader enforcement powers, the Prime Minister said.

The terms of reference provided to the ACCC will direct them to consider the key cost drivers of retail electricity pricing, any entry barriers in retail markets and whether there is any behaviour preventing or limiting competition.

The watchdog will also consider the profitability of electricity retailers and whether these profits are commensurate with their costs and risks, as well as any wholesale market price, cost or conduct issues relevant to the inquiry.

It will also assess other impediments to consumer choice including the "transparency and clarity" of contracts.

Mr Turnbull said recent work by a number of organisations had highlighted significant concern about recent price increases on the east coast, as had some submissions to Chief Scientist Alan Finkel's review of the energy market.

In a December report the Australian Energy Market Commission said residential electricity prices would rise over the next two years driven largely by significant wholesale cost increases following the closure of the Hazelwood coal-fired power station.

However, the commission said it could not separately report on the retail component of residential electricity prices because of the difficulty in quantifying retail costs, which would require information gathering powers.

The ACCC inquiry will be given until June 2018 to issue its final report but will be expected to deliver preliminary findings within the next six months.

The ACCC will work closely with the Australian Energy Market Commission and the Australian Energy Regulator.

The government will use the review to consider what further action should be taken to ensure markets are truly competitive and consumers can have confidence in the reliability, security and pricing of supply, Mr Turnbull said.

Experts have called on the government to look seriously at an emissions intensity scheme to make Australia's electricity supply more stable - and potentially bring down prices.

However the government last year ruled out such a scheme, which would make generators pay for excess emissions, after coming under political pressure due to its similarity to a carbon price.