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Renewable and Sustainable Energy Reviews 69 (2017) 822832

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Renewable and Sustainable Energy Reviews


journal homepage: www.elsevier.com/locate/rser

Modeling household energy expenditure in the United States MARK


a, b
Mahmoud Salari , Roxana J. Javid
a
Department of Economics, Texas Tech University, Lubbock, TX 79409-1014, United States
b
Department of Engineering Technology, Savannah State University, Savannah, GA 31404-5254, United States

A R T I C L E I N F O A BS T RAC T

Keywords: Energy consumption is one of the main source of air pollution, greenhouse gas emission, and global warming.
Household energy expenditure Reducing household energy consumption is a key goal of policymakers. We develop statistical models using
Gas expenditure socio-economics and demographics, building characteristics, location, temperature, and energy prices to
Electricity expenditure estimate household energy expenditure in the U.S. We use household energy expenditure for more than
Reducing household energy consumption
560,000 households in the U.S. from 2010 to 2012. We rst employ multivariate regression models to
Principal component analysis
Statistical data analysis
investigate and identify the impacts of the explanatory variables on household energy expenditure. Next, we use
Principal Component Analysis (PCA) to convert correlated co-linear explanatory variables into orthogonal
components and estimate household energy expenditure by principal component regression. We nd newer
attached buildings to be eective in decreasing household energy expenditure, particularly among educated
people in metropolitan areas. With sucient data availability, our model could be used by state, regional, or
even city-level policymakers and planners to optimize their infrastructural investments.

1. Introduction future [4,29]. Since consumers in the residential sector have dierent
characteristics, nding a comprehensive model that includes the main
The human population has experienced a signicant increase since factors of this sector is challenging [69].
World War II. Obviously, energy consumption has been boosted over Fig. 2 shows the main energy demand sectors in the U.S. This chart
this period due to the population growth. Finding the main factors that indicates that about 22% of energy is consumed by the residential
aect energy consumption has become an interesting issue over the last sector. This substantial energy consumption level needs a detailed
several decades [53,77]. Factors that impact the energy consumption analysis of household energy consumption over time.
are various among regions; therefore, demand for energy varies from The signicant amount of households energy consumption in the
one region to another one. Generally, energy consumption per capita residential sector motivates many scholars and policymakers to
diers signicantly across countries around the world. Thus, people investigate how to estimate household energy demand [11].
from dierent countries have dierent levels of energy consumption Moreover, energy consumption in the residential sector has been
[17]. Fig. 1 shows the energy consumption in the world, and based on remarkably increasing compared to the other sectors. According to
the Fig. 1, the U.S. has one of the highest energy consumption levels in the U.S. Census Bureau's 2012 American Community Survey [68],
the world [2]. natural gas and electricity are the main energy sources that are used as
Since energy eciency is seen as a very important policy, most a primary heating fuel for buildings in the U.S. Additionally, carbon
countries are investigating proper ways to reduce energy consumption. dioxide (CO2) is produced from the household energy consumption
The advantage of using energy eciency policies is reducing green- associated with heating and cooling in their buildings [32]. Fig. 3
house gas emissions and local air pollution, while increasing social demonstrates the primary energy sources of heating used by house-
welfare [21,45]. Generally, four main sectors in each country consume holds in the U.S. by region.
energy: industrial, transportation, residential, and commercial sectors. The main variables that eect energy consumption are economic,
Reducing energy consumption and emissions in all four main sectors demographic, climate indicators, and technological changes in the
are the primary goal of policymakers, particularly in transportation physical characteristics of buildings [18,36,73]. Researchers and
[30,31,33,35,34] and residential [63,24,4,46,75] sectors. Energy con- policymakers employ dierent approaches to estimate residential
sumed by the residential sector has grown over the last thirty years and energy consumption [77,63,38,50]. There is extensive literature on
residential energy demand suggests that this trend will continue in the household energy consumption regarding the building features typi-


Corresponding author.
E-mail addresses: salari.mahmoud@gmail.com (M. Salari), javidr@savannahstate.edu (R.J. Javid).

http://dx.doi.org/10.1016/j.rser.2016.11.183
Received 31 August 2016; Received in revised form 25 October 2016; Accepted 12 November 2016
Available online 02 December 2016
1364-0321/ 2016 Elsevier Ltd. All rights reserved.
M. Salari, R.J. Javid Renewable and Sustainable Energy Reviews 69 (2017) 822832

Fig. 1. Energy consumption per capita by country, 2010 [2].

cally in the engineering area. While those studies mainly focus on the
building characteristics, most of the economic studies consider demo-
Industrial
graphics of households as well as their building characteristics.
31% Moreover, climate studies [29,6,81] developed models based on
heating and cooling temperatures of the residential locations. Each
model relies on one of the main characteristics, while ignoring other
parts.
The main contribution of our study is to make an extensive review
Residential of the various residential energy models and propose a new compre-
Transportation
22% hensive model to estimate household energy expenditure in the U.S.
28% Additionally, we combine several detailed datasets to investigate the
impact of dierent factors on household energy expenditure. We use
data for more than 560,000 individual households in the U.S. to
Commercial develop a comprehensive model for household gas and electricity
19% expenditure. We classify factors aecting household gas and electricity
expenditures into ve categories: socio-economics and demographics,
building characteristics, location, temperature, and energy prices. A
households gas and electricity expenditures are considered to measure
Fig. 2. Total energy consumption by sectors in the US, 2011 [1].
the household gas and electricity consumption respectively. Finally,

Fig. 3. Households primary space-heating fuel and Census Region in 2012 [68].

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M. Salari, R.J. Javid Renewable and Sustainable Energy Reviews 69 (2017) 822832

Table 1 Table 1 (continued)


Selected previous studies and their main factor(s).
Study Country Type of Main Factor (s) Period
Study Country Type of Main Factor (s) Period energy
energy
Salari and U.S. Gas and Socio-economics 2005
Cayla et al. [12] French Electricity Socio-economics 2009 Javid [63] Electricity and demographics 2013
and demographics Building
characteristics
Pachauri [54] India All Fuels Socio-economics 1993 Temperature
and demographics 1994 Energy prices
Building
characteristics

Rehdanz [57] Germany All Fuels Socio-economics 1998


and demographics and understanding the main determinants of household energy consump-
Building 2003 tion is essential for policymakers as they seek to identify the most
characteristics eective strategies for household energy reduction. The following
section presents the literature review and theoretical frameworks,
Santamouris Greece Electricity Socio-economics 2004
et al. [64] (Athens) and demographics which are then succeeded by a sample selection and datasets descrip-
Building tion. The proposed models and results are presented in the subsequent
characteristics section and followed by the conclusion.

Sardianou [65] Greece Oil Socio-economics 2003


and demographics
Building 2. Literature review and theoretical frameworks
characteristics
Residential buildings are one of the main sectors in energy
Brounen et al. Netherlands Gas and Socio-economics 2008
consumption. The main household energy expenditure in buildings is
[10] Electricity and demographics 2009
Building
derived from heating, cooling, lighting, and electric appliances [64].
characteristics Based on previous studies [63,64,9,44], characteristics of households,
physical features of buildings, types of climates, features of locations,
Schuler et al. West All Fuels Socio-economics 1988 and energy prices are the key factors that determined the changes in
[66] Germany and demographics
household energy consumption. Table 1 and the following section
Building
characteristics present the dierent aspects of household energy consumption models
Location and their approaches in previous studies.

Hamilton et al. UK Gas and Building 2004


[24] Electricity characteristics 2007
Location
2.1. Socio-economics and demographics
Moral-Carcedo Spain Electricity Temperature 1995
and Vicns- 2003 The role of social and demographic characteristics is often ignored
Otero [48] in some theoretical studies; household characteristics have a distinct
impact on energy consumption [63,10,13]. Socio-economic and demo-
Meier and Great Britain Gas, Socio-economics 1991
Rehdanz [47] Electricity and demographics 2005 graphic attitudes such as age, level of education, types of family, and
and Oil Building household income determine household social classes and the ways
characteristics people live. These classes can reect household energy consumption
Location behavior. Wiesmann et al. [77] showed that household characteristics
Temperature
have a signicant inuence on the household energy consumption in
Yun and U.S. All Fuels Socio-economics 2001 Portugal as well as dwelling characteristics. Meier and Rehdanz [47]
Steemers [79] and demographics indicated that heating expenditures increase with household size and
Building the average age of occupants in a household. Tonn and Eisenberg [71]
characteristics
examined the relationship between the aging U.S. population and the
Temperature
energy demand for the residential sector. They found that elderly
Ruth and Lin U.S. Gas and Temperature 1977 people tend to use more residential energy compared to younger ones.
[60] (Maryland Electricity Energy prices 2001 The head of households educational level is negatively related to
and energy consumption; this relationship suggests that households with
Washington)
Fan and South Electricity Energy prices 1997
more education tend to make more modern and ecient energy choices
Hyndman Australia 2008 [27,55].
[20] Consumer theory indicates that individuals and households are
Dilaver and Turkey Electricity Energy prices 1960 willing to maximize their utilities regarding their budget constraints.
Hunt [14] 2008
Households increase their consumption for inelastic normal goods and
Bernard and Canada Electricity Location 1989 an increase their consumption even more for luxury goods, while they
Bolduc [8] (Quebec) Temperature 2002 reduce their consumption of inferior goods [22]. Tso and Yau [72] and
Energy prices Santamouris et al. [64] showed that energy consumption of households
is related to family income and household composition. Therefore,
Reiss and U.S. Electricity Building 1993
White [58] (California) characteristics and
social characteristics of households are the main component of
Temperature 1997 designing a proper model for energy consumption by the residential
Energy prices sector. We use the four social and demographic variables: age and the
level of householder education, household size, and total household
(continued on next page)
income.

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2.2. Building characteristics


Socio-economics
and Demographics
Improving the energy eciency of buildings is mainly focused to
reduce energy consumption that is priority for policymakers in many
countries [40,52]. Several studies [61,39,56] have shown that house- Building
holds could reduce their buildings energy consumption by implement- Energy Prices
Characteristics
ing strategies that improve heating, cooling, air conditioning systems, Energy
electrical lighting and insulation. Building energy eciency is typically Expenditure
determined by improvement in physical and technical characteristics of
the building. The number of rooms and the amount of energy used in a
building is positively related. Thus, each additional room in a building
results in increasing the amount of energy used in the building
Tempreture Location
[70,16,43]. Generally, old buildings have production systems with
lower eciency compared to the new ones. Therefore, energy con-
sumption is impacted by a building's age [15,84,85]. Fig. 4. Comprehensive model for household energy expenditure.
Residential energy consumption varies across dierent building
types. The main dierence exists between detached units and attached
ones. Aydinalp et al. [7] showed that energy consumption of a single
detached house is higher than that of a single attached house. Based on quantities compared to percentage changes in prices. The elastic
the available data, we include the main variables of a building to demands indicate more percentage changes in quantities compared
measure the eect of building structures on energy consumption. to percentage changes in prices [20].
Fig. 4 shows the main factors that contribute to household energy
2.3. Location consumption. The annual energy expenditure of each household may
depend on using durable goods in the building, but such goods are
A metropolitan area is often warmer than a less developed unobservable and so we do not focus on controlling them.
surrounding area due to the bigger energy budgets of metropolitan Salari and Javid [63] estimated electricity and gas demand in the
areas compared to their rural counterparts. This phenomenon is known residential sector using aggregated datasets on the U.S. states, while
as the urban heat island [25,62]. Urban heat island states that considering socio-economic and demographic variables, building age,
temperatures in densely built environments such as metropolitan areas energy prices, and weather conditions. They dened two alternative
are higher than the surrounding environments due to the positive scenarios to quantify the impacts of residential electricity price and
urban thermal balance [37,83]. Moreover, buildings in metropolitan building age on reducing residential electricity and gas consumption,
areas mostly are newer than buildings in rural areas. Hence, the respectively. In this study, we employ massive disaggregated level of
location of buildings has aected their energy demands due to this data; using more than 560,000 household observations; to estimate
phenomenon. We dierentiate between buildings in metropolitan areas household energy expenditure.
and rural areas.
3. Datasets
2.4. Temperature
We used ve main dierent categories that aect household energy
Climate has an eect on household energy consumption through expenditure and employed several datasets to address dierent vari-
changes in heating and cooling. Understanding that climate impacts ables in each category. The main source of datasets for socio-economics
energy demand would help policymakers make better decision to and demographics, building characteristics, and location employed
develop investment strategies [81,48,41]. The eect of climate on from the 1% 2010, 2011, and 2012 sample of the Integrated Public Use
energy consumption has been considered by studies investigating the Microdata Series (IPUMS) [59]. The temperature data was from the
relationship between energy demand and outdoor temperature. National Oceanic and Atmospheric Administration [51]. We used
Previous studies [63,29,48,41,26] have shown that the relation be- monthly, statewide, averaged temperature data.
tween energy consumption and temperature is non-linear. This in- Furthermore, the average annual gas and electricity prices for states
dicates that low or high temperature increases the demand for energy: originated from the U.S. Energy Information Administration (EIA)
the low/high temperature consistent with higher energy demand and [74]. Table 2 presents the ve factors and their main explanatory
intermediate temperatures correspond to lower energy demand. variables with their abbreviations. Variables in each category are
dened based on the energy consumption theories and availability of
2.5. Energy prices data.
The sample in our study includes buildings that are owned or being
Energy prices may aect household decisions to modify energy bought (loan). Households with zero or negative income were excluded
demand to household gas and electricity consumption. Thus, policy- from the sample. The main sample includes married-couple family
makers need to know how households will respond to energy price households whose head of households ages range from 20 to 70 years
changes and how that price aects decisions about energy consump- old. We considered the buildings that their values are more than $1000
tion. Energy demand changes from a units increase/decrease in price dollars. Mobile home or trailer and boat, tent, and van were eliminated
is referred to as price elasticity of demand [63,23,3,80,67]. Two kinds from the main sample. The sample included buildings with complete
of energy prices are investigated in economics theory: own-price plumbing facilities. We excluded Alaska and Hawaii from the sample
elasticity and cross-price elasticity. Own price elasticity demonstrates since the requested data were not available for them. Finally, the main
how households adjust decisions when faced with changing prices of sample contains 392,034 households in the U.S. who mainly used gas
energy that are estimated as a demand function. A cross-price elasticity and 168,046 households who mainly used electricity. Accordingly, we
of demand measures how households modify decisions while the price analyze observations from 2010 to 2012 for more than 560,000
of other energy sources would be changed. Own-price elasticity and households in the U.S.
cross-price elasticity have two classications that include inelastic and Table 3 provides an overview of the data for the households that
elastic. The price inelastic demand means less percentage changes in mainly used electricity and gas in their buildings.

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Table 2 sources were living in older buildings compared to the people who used
The five factors and their main explanatory variables.. electricity. About 5% of households in our sample lived in attached
buildings which joined to another house or building. The number of
Factor Variable Abbreviation
cooling degree days for households that used gas as a main source of
Socio-economics and Head of households age HHage energy is smaller than of those that used electricity, while the number
demographics Head of households HHedu of heating degree days is smaller for households that used electricity
educationa
rather than gas.
Household sizeb Size
Household Incomec Inc
4. Models and results
Building characteristics House Valued HV
Number of roomse NR
The main framework estimates the annual household energy
Period of constructionf PC
Attached Buildingg AB expenditure by ve main factors. The main function can be expressed
Location Metropolitan areah MA as:

Temperature Cooling degree days CDD


Et = f (St , Bt , Lt , Tt , Pt ) (1)
Heating degree days HDD
where E indicates the annually household energy expenditure, S shows
Energy prices Gas pricei GP socio-economic and demographic characteristics, B presents the build-
Electricity pricej EP ing characteristics, L demonstrates the location, T controls tempera-
ture, and P denotes the annual energy prices. Fig. 5 presents the
a
Educational level indicates respondents' educational attainment, as measured by the detailed implementation procedure using household energy expendi-
highest year of school or degree completed. The number varies from 0 (no schooling) to
ture models. To examine the inuence of the ve main factors on
11 (5+ years of college). For additional detail, see IPUMS.
b
The number of household members in the unit. annual gas and electricity expenditure, multivariate regression models
c
Household income is reported in a thousand dollar scale. are used. Multiple regression models are used to estimate household
d
House value is reported in a thousand dollars scale. energy expenditure with dierent approaches. Most studies focused on
e
The number of whole rooms used for living purposes that are contained in the
one or two main factors and ignore other factors; we include all ve
housing unit.
f
The decade in which the structure was built.
main factors in the main model. The key issue in using ve main factors
g
Attached one-unit structures are joined to another house or building by a dividing in one comprehensive model is that some variables may have multi-
wall that goes from ground to roof. collinearity issues in relevant estimation models.
h
Metropolitan area indicates whether the household was located within a metropo-
litan areas central/principal city (or cities), or within the remainder of the metropolitan
area. For additional detail, see IPUMS. 4.1. Variance Ination Factor (VIF)
i
Gas price is reported as dollars per thousand cubic feet.
j
Electricity price is reported as cents per kilowatt-hour. We employ VIF in order to determine the multicollinearity issues in
proposed models. In addition, VIF calculations are straightforward and
comprehensive; the higher the value of VIF, the higher the collinearity
According to the Table 3 the average of annual electricity expen- is between the related variables. The reported VIFs are less than 10,
diture is twice the average of annual gas expenditure for households. which indicates that multicollinearity among the explanatory variables
The ages of the heads of households and household sizes are similar for is not a problem. Accordingly, VIF has been used in the proposed
households who mainly used gas and those used electricity, while total model to identify multicollinearity [28,76]. Table 4 reports the VIF
incomes and house values for households that mainly used gas are values of all variables for estimation models.
more than households that mainly used electricity. Therefore, house- CDD, HDD, GP, and EP are evidently collinear as shown by their
holds who used gas as the main source of energy seems to be richer large VIF values. Thus, multicolliearity is an issue for concern in a
than household who used electricity as the main source of energy due linear regression model when considering temperature values and
to their average incomes and house values. The average periods of energy prices. Therefore, we propose principal component regression
construction for household who mainly used gas and electricity are due to multicollinearity issues for correlated variables to run bench-
1970s and 1980s respectively. People who used gas as the main energy marking regression models.

Table 3
Household energy expenditure by types, household socio-economics and demographics, building types, location, temperature, and energy prices.

Households mainly use gas Households mainly use electricity

Mean Std. Dev. Min Max Mean Std. Dev. Min Max

Gas costa 1278.12 1088.05 48 6960 Electricity costa 2476.48 1225.37 48 7200
HHage 50.75 11.31 20 70 HHage 50.11 11.88 20 70
HHedu 8.38 2.32 2 12 HHedu 8.01 2.29 2 12
Size 3.21 1.33 2 20 Size 3.14 1.31 2 16
Inc 117.54 96.72 0.001 1711.33 Inc 99.65 80.38 0.001 1756
HV 316.86 354.69 1 4930 HV 246.39 278.71 1 4524
NR 7.43 2.40 1 26 NR 6.94 2.22 1 26
PC 1970s 30 1939 2010s PC 1980s 20 1939 2010s
AB 0.05 0.22 0 1 AB 0.05 0.21 0 1
MA 0.76 0.43 0 1 MA 0.63 0.48 0 1
CDD 31.68 21.56 0 96.2 CDD 53.43 29.81 0 96.2
HDD 163.25 56.48 12.3 301.7 HDD 114.44 65.03 12.3 301.7
GP 12.57 2.66 7.87 19.47 GP 11.25 1.84 7.87 19.47
EP 11.18 1.98 7.43 18.34 EP 12.76 3.00 7.43 18.34
Observations 392,034 Observations 168,046

a
Amounts are reported annually and expressed in contemporary dollars.

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Fig. 5. Detailed implementation procedure using household energy expenditure.

Table 4
Variance inflation factors (VIFs) for all variables.

Household Gas Expenditure Models Household Electricity Expenditure Models

(1) (2) (3) (4) (5) (1) (2) (3) (4) (5)

HHage 1.23 1.26 1.26 1.26 1.26 1.23 1.27 1.27 1.27 1.27
HHedu 1.17 1.22 1.22 1.22 1.22 1.15 1.19 1.19 1.19 1.19
Size 1.26 1.29 1.29 1.29 1.29 1.24 1.28 1.28 1.28 1.28
Inc 1.22 1.46 1.47 1.47 1.47 1.16 1.34 1.35 1.35 1.35
HV 1.88 1.94 1.94 1.94 1.61 1.63 1.63 1.63
NR 1.31 1.31 1.31 1.31 1.27 1.27 1.27 1.27
PC 1.16 1.16 1.16 1.16 1.11 1.11 1.11 1.11
AB 1.06 1.06 1.06 1.06 1.07 1.08 1.08 1.08
MA 1.46 1.46 1.46 1.47 1.49 1.49
CDD 26.47 27.07 29.67 31.29
HDD 38.47 45.52 16.72 21.75
GP 49.57 122.11
EP 58.03 32.48

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4.2. Multivariate regression inelastic for households. Therefore, income growth for households
results in a lesser increase in electricity consumption. Households who
We estimate the annual household energy expenditure by using the have higher education levels are associated with lower energy con-
following empirical models. The double logarithmic regression model sumption due to more choices that are available for a household to
oers an appropriate function form for estimating income or price reach ecient energy sources. Thus, the annual gas expenditure of a
elasticity. The rst model examines the role of socio-economics and household is related to the social and demographic of a household.
demographics to gas and electricity expenditures of a household by Eq. Column 2 shows the house value and the number of rooms are
(2). positively related to the gas expenditure. Building characteristics show
that each additional room in a building increases gas expenditure for
ln (Ehs )= 0 + 1lnHHagehs + 2lnHHedu + 3lnSize + households. Also, new buildings are more ecient than older ones, and
hs hs

4lnInc + s + t + hs the gas expenditure for new buildings is less than older ones. Moreover,
hs (2)
attached buildings need less gas compared to detached ones. Therefore,
where ln (Ehs) is the annual gas or electricity expenditures in the column 2 indicates that if one building is attached, it is expected that
logarithm value. The main explanatory variables for socio-economics the building gas expenditure would be 12% lower than detached ones.
and demographics include head of households age and education, The results indicate that the annual gas expenditure of the household is
household size, and household members' individual incomes that are not only related to the social and demographic status and building
reported in the logarithm value to better understand percentage change characteristics, but it also depends on the location, temperature, and
in energy expenditure. s includes a full set of state xed eects in the energy prices.
model to exclude the eect of states,t includes a full set of time xed Column 3 adds the location variable to the model. The results show
eects in the model to eliminate the impact of time, and hs shows the that living in the metropolitan area decreased gas expenditure about
standard error. The second model adds the building characteristics of 12% for each building. Table 5 also provides evidence for annual
households to the primary model. Eq. (3) shows a household energy electricity expenditure for each household. The results indicate that the
expenditure based on the socio-economic status, demographic infor- level of education for the householder, period of construction for
mation and building characteristics. buildings, metropolitan area, and attached building are negatively
related to the households energy expenditure. The electricity expen-
ln (Ehs )= 0 + 1lnHHage + 2lnHHedu + 3lnSize + diture in attached buildings has a greater aect compared to the gas
hs hs hs

4 lnInc + 5 lnHV + 6lnNR + 7lnPC + 8AB expenditure. One building that is attached has about 14% reduction in
hs hs hs hs hs
its annual electricity expenditure. Findings in column 4 through
+ s + t + hc (3) column 6 are consistent with the ndings in columns 1 through 3
respectively.
The main variables based on the available data in our study include
Adding temperature values and energy prices to the regression
house value, number of rooms, period of construction, and attached
models brings multicollinearity issues in multivariate regression mod-
building characteristics. All variables for building characteristics are
els.
reported as a natural value except for attached buildings. Attached
buildings in this model are a dummy variable that take the value of 1 if
4.3. Principal Component Analysis (PCA)
a building is an attached one and 0 otherwise. Eq. (4) adds the location
characteristic to the second model.
PCA is a statistical technique that helps scholars make a better
ln (Ehs )= 0 + 1lnHHage + 2lnHHedu + 3lnSize + comprehensive model from dened variables. There are two important
hs hs hs
reasons that lead researchers to use this technique in their studies: 1)
4 lnInc + 5 lnHV + 6lnNR + 7lnPC + 8AB the existence of the multicollinearity issues among the independent
hs hs hs hs hs

+ 9MA + s + t + hc variables and 2) the existence of a large number of independent


hs (4)
variables [49]. PCA is used to reduce data sets to lower dimensions
MA is the location dummy variable (MA=1 if a building is located in while keeping the original information as much as possible [42]. PCA is
a metropolitan area, 0 otherwise). the linear combination of the original dependent variables and keeps
We dene two indicators to measure the eect of temperature on all original variables in the regression model. The procedures of using
energy consumption. HDD and CDD are typically based on the PCA are described below:
temperature of 65 0F and are dened as follows [63,50,78,82,5]:
Step 1. The correlation matrix of original variables is constructed
ifT <65
from Eq. (7).
HDDs = 65F Ts
d =1 to 365 (5)
C11 C1k n
ifT >65
k =1 xi xj
CDDs = Ts65 F C= , cij = n 1
d =1 to 365 (6) Ck1 Ckk (7)
where HDDs is heating degree days, CDDs is cooling degree days in
location s. d shows the regular day in the year. T demonstrates the where C is the correlation matrix and k is the number of variables, and
average daily temperature. Table 5 presents the regression estimates i,j=1,2,,k.
for annual gas and electricity expenditures based on dierent specica-
tions.
All the variables that are used to estimate household energy Step 2. The non-negative eigenvalues of the standardized matrix are
expenditure are statistically signicant. The basic model used the calculated from Eq. (8).
socio-economic status and demographic information of households
and their gas and electricity expenditures. The rst column shows that
I C =0 (8)
the householders age and household size are positively related to the
gas expenditure for each household. The income elasticity of gas
consumption is less than one, which indicates that gas demand is where is the non-negative eigenvalues and I is the identity matrix.

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Table 5
Household energy expenditure based on different multivariate regression models.

Household Gas Expenditure Household Electricity Expenditure

(1) (2) (3) (1) (2) (3)

HHage 0.241(0.006)*** 0.173(0.006)*** 0.168(0.006)*** 0.248(0.005)*** 0.167(0.005)*** 0.162(0.005)***


HHedu 0.016(0.003)*** 0.059(0.003)*** 0.058(0.003)*** 0.024(0.003)*** 0.015(0.003)*** 0.014(0.003)***
Size 0.262(0.004)*** 0.225(0.004)*** 0.231(0.004)*** 0.309(0.003)*** 0.260(0.003)*** 0.260(0.003)***
Inc 0.075(0.002)*** 0.020(0.002)*** 0.025(0.002)*** 0.089(0.002)*** 0.040(0.002)*** 0.042(0.002)***
HV 0.096(0.002)*** 0.108(0.002)*** 0.063(0.002)*** 0.067(0.002)***
NR 0.187(0.005)*** 0.186(0.005)*** 0.288(0.004)*** 0.288(0.004)***
PC 0.058(0.002)*** 0.056(0.002)*** 0.022(0.002)*** 0.022(0.002)***
AB 0.120(0.006)*** 0.108(0.006)*** 0.152(0.005)*** 0.143(0.006)***
MA 0.125(0.003)*** 0.065(0.003)***
State-xed eects Y Y Y Y Y Y
Year-xed eects Y Y Y Y Y Y
Observations 392,034 392,034 392,034 168,046 168,046 168,046
R-squared 0.142 0.156 0.159 0.133 0.176 0.178
Adj R2 0.142 0.156 0.158 0.133 0.176 0.178

***
Statistically signicant at the 1% level.

Table 6
Summary of principal components and their eigenvalues.

Gas Electricity

(1) (2) (3) (1) (2) (3)

Component Eigenvalue Proportion Cumulative Eigenvalue Proportion Cumulative

PC1 2.329 0.179 0.179 2.559 0.197 0.197


PC2 2.047 0.158 0.337 2.115 0.163 0.360
PC3 1.441 0.111 0.448 1.435 0.110 0.470
PC4 1.391 0.107 0.555 1.344 0.103 0.573
PC5 1.048 0.081 0.635 1.039 0.080 0.653
PC6 0.853 0.066 0.701 0.832 0.064 0.717
PC7 0.826 0.064 0.764 0.795 0.061 0.778
PC8 0.786 0.061 0.825 0.700 0.054 0.832
PC9 0.694 0.053 0.878 0.629 0.048 0.881
PC10 0.518 0.040 0.918 0.536 0.041 0.922
PC11 0.505 0.039 0.957 0.498 0.038 0.960
PC12 0.452 0.035 0.992 0.444 0.034 0.994
PC13 0.109 0.008 1.000 0.075 0.006 1.000

cause the multicollinearity issues in the regression model.


Step 3. The weight of the original values in each PC is calculated
from Eq. (9).
Step 5. The number of principal components to make the nal model
C I W = 0 (9) is selected via Eq. (11).

where W is the matrix of the weights. E (Energy expenditure )=a+b1PC1 + b2 PC2++bn PCn (11)

Step 4. The new principal components that include original values in where n is the number of principal components that makes the nal
a linear combination are calculated in Eq. (10). estimation model. There are many strategies that help to make the
proper combination of PCs in the regression model [49,19]. The
n KaiserGuttman rule is one of the main methods that is used in most
PCi = ijXj i=1 : k of the studies due to its simplicity. We use this method for making a
j =1 (10) regression model based on the PCs that indicates that a PC is only
included in the model if its eigenvalue is greater than one. Table 6
summarizes the principal components and their eigenvalues.
where PCi is the ith principal component for n original variables.
Principal components can be employed in the regression model as a
We use the rst ve principal components in the model because
combination of the original variables. The total number of PCs is the
their eigenvalues are higher than 1. The rst ve principal components
same as the total number of original variables. The advantage of this
are capable of explaining 65.3% of the variance in the original dataset.
technique is that some of the PCs are selected to solve the multi-
These ve components are orthogonal to each other and can represent
collinearity issues in the model. However, selecting all the PCs might
the major characteristics of the original variables. Each principal

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M. Salari, R.J. Javid Renewable and Sustainable Energy Reviews 69 (2017) 822832

Table 7
Principal components and the original variables.

Gas Electricity

Variable PC1 PC2 PC3 PC4 PC5 PC1 PC2 PC3 PC4 PC5

HHage 0.087 0.009 0.242 0.658 0.052 0.029 0.075 0.656 0.233 0.114
HHedu 0.387 0.073 0.158 0.116 0.196 0.027 0.406 0.094 0.119 0.342
Size 0.150 0.004 0.175 0.640 0.242 0.010 0.114 0.619 0.211 0.339
Inc 0.478 0.086 0.124 0.153 0.025 0.026 0.512 0.121 0.082 0.004
HV 0.471 0.030 0.012 0.180 0.082 0.003 0.494 0.174 0.004 0.107
NR 0.345 0.078 0.325 0.155 0.188 0.051 0.356 0.154 0.345 0.234
PC 0.132 0.217 0.245 0.042 0.529 0.146 0.121 0.092 0.342 0.534
AB 0.045 0.069 0.288 0.133 0.719 0.008 0.061 0.193 0.417 0.584
MA 0.335 0.067 0.318 0.152 0.075 0.224 0.288 0.185 0.373 0.079
CDD 0.134 0.649 0.045 0.012 0.056 0.571 0.108 0.025 0.130 0.041
HDD 0.050 0.641 0.178 0.040 0.075 0.585 0.064 0.001 0.042 0.076
EP 0.273 0.250 0.503 0.112 0.171 0.505 0.014 0.042 0.058 0.027
GP 0.158 0.175 0.484 0.085 0.130 0.020 0.258 0.165 0.557 0.221

explanatory variables as long as those explanatory variables are


Table 8 independent. Next, we propose the PCA technique to overcome multi-
Household energy expenditure based on PCA. collinearity issues among explanatory variables.
The ndings show that the ve main factors, including social and
Gas expenditure Electricity
expenditure demographical compositions, building characteristics, location, tem-
peratures, and energy prices have impact on the household energy
PCG1 4.959 PCE1 21.645(0.797)*** expenditure. While, social and demographical features and building
(0.145)***
characteristics are the two most important factors aecting on house-
PCG2 3.302 PCE2 14.997(0.286)***
(0.376)*** hold energy consumption. Higher educational level of head of house-
PCG3 18.264 PCE3 25.570(0.587)*** hold is positively aecting saving the household energy expenditure.
(0.426)*** This may be due to the fact that head of households who are more
PCG4 4.337(0.242)*** PCE4 93.1000 educated, have more information regarding saving energy in their
(1.391)***
buildings. Additionally, households in newer buildings consume less
PCG5 22.899 PCE5 36.468(0.556)***
(0.436)*** energy since new buildings most likely have to pass tighter building
State-xed eects Y State-fixed effects Y regulations and have more checks and standards compared to older
Year-xed eects Y Year-fixed effects Y ones. Remarkably, attached buildings consume much less energy
Observations 392,034 Observations 168,046
compared to detached ones due to ability to keep the energy.
R-squared 0.1352 R-squared 0.1195
Adj R2 0.1351 Adj R2 0.1193
Moreover, location specication of each building impacts on the
households energy expenditure in the way households who are located
***
Statistically signicant at the 1% level. in metropolitan area consume less energy. Therefore, policymakers can
use these ndings to nd proper ways to decrease energy consumption
for households. Policymakers can provide households with informa-
component is a linear combination of all the variables. The proposed tion, feedbacks, and tips about energy conservation and energy
PCA model produces smaller prediction errors than the multivariate eciency. Besides, they can provide nancial incentives such as various
regression model while keeping all the eects of the original variables subsidies to switch to the new buildings and encourage people to build
in the model. Table 7 shows the rst ve principal components and attached house or buy attached buildings. Finally, PCA is the suggested
their original values for gas and electricity expenditures. model that can employ all main factors in a model simultaneously
Table 8 also provides evidence for annual gas and electricity regarding their multicollinearity issues. PCA keeps all the main
expenditures for each household by using the rst ve new sets of correlated variables and makes fewer principal uncorrelated compo-
principal components. The ndings show that each of the ve principal nents. Thus, principal component regression as a comprehensive
components is statistically signicant for household gas and electricity model is able to describe household energy consumption while keeping
expenditures. The results indicate that household energy expenditure is the eect of all the original variables in the model. These models could
most likely to be aected by the ve main factors and their original be used by policymakers to optimize their investments to imply that
values. larger household energy consumption reductions can be achieved.

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