The Office of Fair Trading (OFT) is to analyse the main energy sources used by UK homes.
A market study into off-grid energy, which is used by some 3.6 million homes across the country, will be followed by a consultation on the issue.
Both investigations will focus on people who are using oil or LPG to heat their homes, and they will also examine suppliers and competition in the energy industry.
Mary Starks, director of infrastructure at the OFT, said: "Around three and a half million households are not connected to the gas grid - and we want to investigate whether the markets in alternative sources of domestic energy are working competitively, efficiently and fairly for them - and, if not, what improvements can be made."
Homes with off-grid energy typically pay higher energy bills, with a higher proportion in fuel poverty, where more than ten per cent of their income is spent on heating their home.