Updated March 27, 2017 16:11:53

Photo: Mr Turnbull said the inquiry is needed to assess whether retailers had been pocketing excessive profits. (ABC News: Adam Kennedy)

Prime Minister Malcolm Turnbull has defended an inquiry into whether energy companies are ripping off consumers after criticism from Labor and the Senate crossbench.

The Government has asked the Australian Competition and Consumer Commission (ACCC) to prepare an interim report on the competitiveness of the energy market.

The Commission will deliver a full report into the competitiveness of the market by mid-2018, a delay which has already drawn criticism from South Australian senator Nick Xenophon.

"There are businesses and consumers that simply cannot wait another 12 months before there'll be senate proposals which may or may not be acted upon," he said.

But Mr Turnbull said the ACCC would have full investigative powers to assess whether retailers had been pocketing excessive profits.

"They and they alone can get to the bottom of this and will do so promptly," Mr Turnbull said.

"We need to get to the bottom of this in a way that protects Australian families and businesses."

Opposition Leader Bill Shorten said Labor was happy to see the inquiry but claimed the lack of a national energy policy was responsible for rising electricity prices.

He called on the Government to commit to the ACCC recommendations saying it would otherwise, "be another inquiry for the sake of being seen to do something".

The Prime Minister dismissed those comments and said Mr Shorten had not delivered on similar promises while in opposition.

"Of course, he has a habit of doing this," Mr Turnbull said.

"I remember when he set up the Fair Work Commission into penalties rates, he made a commitment to support every recommendation it made too."

Mr Turnbull said the inquiry was one of many measures to address the affordability and security of energy in an evolving market.

The ACCC review will also look into the transparency and clarity of energy company contracts with consumers, and check if there has been any anti-competitive behaviour or collusion.

The probe will investigate the margins and profits of power retailers and see if they are in line with costs and risks.

When announcing the inquiry, Mr Turnbull cited a Grattan Institute report released earlier this month that found the Government needed to re-regulate the sector to protect consumers.

The report found Victorians would save about $250 million a year if the margin for state electricity retailers matched the national average.

Energy Minister Josh Frydenberg said electricity prices often accounted for 25 per cent of household bills and energy retailers enjoyed high-profit margins.

"We know that customers do benefit from moving suppliers to get the best possible rate but 50 per cent of customers and households have not changed suppliers over the last five years," Mr Frydenberg said.

Topics: government-and-politics, electricity-energy-and-utilities, business-economics-and-finance, industry, australia

First posted March 27, 2017 13:48:07