CHAPTER 6 FACTORS INFLUENCING THE ADOPTION OF ENERGY EFFICIENT TECHNOLOGIES AND CONSERVATION HABITS IN INDIAN URBAN HOUSEHOLDS - USE OF FACTOR ANALYSIS 6.1 INTRODUCTION One of the objectives of the study is to determine the factors which are influencing the adoption of EETs and conservation habits in Indian urban households. The original data consists of 32 variables grouped under five areas. These variables are defined based on explanation, experience or knowledge (literature survey and discussions with the experts). Hence there is a need to look out for a smaller number of variables that can be used for describing the adoption of EETs and CHs in Indian urban households. Factor analysis, a multivariate statistical procedure which attempts to reveal a simple underlying structure that is presumed to exist within @ set of multivariate observations has been used for this purpose. It is interesting to note that this technique was developed by experimental psychologists in 1930s and the very name ‘factor’ is attributed to hypothetical mental attributes, referred to as ‘factors of mind” (Krishnaswamy et al, 2006). Factor analysis, in a strict sense refers to a statistical procedure by which a data matrix is decomposed into a prescribed number of uncorrelated factors and a residual set of ‘unique’ random variations (For a detailed discussion of the methodology of Factor analysis refer Appendix 5). 6.2 METHODOLOGY Factor analysis is often used in data reduction to identify a small number of factors that explain most of the variance that is observed in a much larger number of manifest variables (as has been used in this study). Factor analysis can also be used to generate hypotheses regarding causal ‘mechanisms or to screen variables for subsequent analysis (for example, to identify collinearity prior to performing a linear regression analysis). However, it is necessary to ascertain the suitability of the data for factor analysis. Two statistics are used to decide the factorability of the data; Bartlett's test of spherecity (significance < 0.05) and KMO (Kaiser-Meyer-Olkin) index (© 0.6) (SPSS manual, 1990). For the survey data of 270 households Bartlett’s test of spherecity 370significance is at 0.000 and KMO index is at 0.739 (Table 6.1) and hence it was decided that the data was suitable for factor analysis. The entire analysis has been carried out using SPSS version 140. The first step in factor analysis consists of computing the correlation matrix for all the variables, involved, Since one of the goals of factor analysis is to obtain “factors” that help explain these correlations, the variables must be related to each other for the factor model to be appropriate. The correlation matrix for the 32 variables (for details refer Appendix 6) shows that more than half the variables have large correlations with at least one of the other variables in the set, Table 6.1 SPSS output of KMO and Bartlett's Test Kaiser Meyer-Olkin Measure of Sampling Adequacy. 0.739 Bartlett's Test of Approx Chi-Square | 2123238, Sphericity Sig 0.000 The second step of Factor analysis is the extraction of factors. Though there are many methods of extracting the factors, the method of Principal Component Analysis has been used in this study, as it extracts the maximum amount of variance accounted for by a minimum number of factors (Krishnaswamy et al., 2006). The principal components method of extraction begins by finding a linear combination of variables (a component) that accounts for as much variation in the original variables as possible. It then finds another component that accounts for as much of the remaining variation as possible and is uncorrelated with the previous component, continuing in this way until there are as many components as original variables. Usually, a few components will account for most of the variation, and these components can be used to replace the original variables. This method is most often used to reduce the number of variables in the data file. With any extraction method, the two questions that a good solution should try to answer are "How ‘many components (factors) are needed to represent the variables?” and "What do these components represent?” aTable 6.2 shown below gives the information about the extracted components using which we can try to answer the above two questions. For brevity sake, the information provided in this table corresponds to only the extracted components. The complete output of Factor analysis carried out with SPSS version 14.0 is shown in Appendix 6, ‘able 6.2 Variance explained by the extracted components Extraction Sums of Rotation Sums of Squared Loadings Squared Loadings Component | Eigen | %of | Cumulative] Total %of | Cumulative values | Variance % Variance % 1 4390 [13.718 13.718 3.585 11.204 11.204 2 3.378 | 10.556 24.274 2.059 6.434 17.639 3 19 | 6.222 30.496 1.996, 6.238 23.877 4 1.829 | 5.717 36.213 1.881 5.880 29.756 3 1.604 5.012 41.225 1.853 5.790 35,546 6 14 [4.410 45.635, 1.838 5.744 41.290 7 1236 [3.864 49.499) 1.786 5.582 46.872 8 1149 [3.592 53.091 1.761 5.503 52.374 9 1.093 [3.417 56.508 1.194 3.730 36.104 10 1.045 [3.267 59.775 1174 3.670 59.775 The Eigen values represent the amount of variance in the original variable that is being explained by the extracted components. The percent of variance column gives the ratio, expressed as a percentage, of the variance accounted for by each component to the total variance in all of the variables. The cumulative percentage column shows the variance accounted for, by the first ‘n” components. Because it is requested that only those factors with Eigen values greater than one are to be extracted, the first ten principal components form the extracted solution, The cumulative percentage column also shows that the ten components explain nearly 60% of the variability in the original variables. So the complexity of the data gets considerably reduced by using these ten components with only 40% loss of information, The Scree plot shown in Figure 6.1 also helps to determine the optimal number of components. Here the Eigen value of cach component in the initial solution is plotted. ‘The principal 172components are components whose Eigen values are greater than one. In the seree plot these components appear along the steep slope. The components on the shallow slope contribute little to the solution. Figure 6.1 Scree Plot Eigenvalue Component Number In the third step of Factor analysis, the solution obtained by principal component method is rotated using varimax rotation. This is an orthogonal rotation method that minimizes the number of variables that have high loadings on each factor. This method simplifies the interpretation of the factors. The rotation maintains the cumulative percentage of variation explained by the extracted components, but that variation is now spread more evenly over the components. The change in individual totals suggests that the rotated component matrix will be easier to interpret than the un rotated matrix. 173In the last step of factor analysis, the rotated component matrix is used to determine what the components represent. Instead of showing the entire matrix, components and the variables with which they have a correlation of more than 0.4 along with appropriate names of these components are shown in Table 6.3 (For the complete matrix refer Appendix 6). It should be mentioned here that the naming of components is entirely subjective. ‘Table 6.3 Factor loadings and names ‘Component Variables Factor Name Loadings 7 ‘Annual income, Ownership of | 0.875, 0.842, 0.833, | Financial status. energy consuming assets, | 0.711, 0.530, 0.521 Monthly expenditure, Size of the house, Number of Energy Efficient Technologies (EETs) owned, Type of residence. 2 Ego factor, Tech savvy. 0.764, 0.693 ‘Attitude towards EET. 3 Awareness about EETs, 0.638, 0.618, 0.607 Awareness about Energy consumption and energy and Environment. environment. 4 Energy conservation habits, | 0.659, 0.653, 0.589, | Cost driven concern Concern for environment, 0.446 for environment. Maintenance cost, Purchase cost. 3 ‘Attitude towards change, | 0.780, 0.639, 0.516 | Willingness to adopt Willingness to adopt, EETs Willingness to invest. 6 Ownership of residence, 0.689, 0.636 Dwelling Degree of satisfaction. characteristics 7 Risk coverage, Government | 0.764, 0.743, 0.539 _| Attitude towards risk. subsidies, Government regulations. 8 Government incentives, 0.696, 0.683, 0.672 | Government efforts Government efforts, Adequacy of information, 9 Family size. 0.776 Family size. 10 Qualification. 0.853 Qualification. The first component is closely correlated with Annual income, Ownership of energy consuming assets, Monthly expenditure, Size of the house, Number of EETs owned and Type of residen 174This component is named as ‘Financial status’. Likewise the second component is closely correlated with Ego factor and Technology savvy nature of the household and hence is named as ‘Attitude towards EET’. Variables, Awareness about EETs, Energy consumption and environment are heavily loaded on factor three. This factor is named as ‘Awareness about energy and environment’. Variables Energy conservation habits, Concern for environment, Maintenance cost and Purchase cost are closely correlated with Factor four and hence this factor is named as ‘Cost driven concern for environment’. Component five is named as "Willingness to adopt EETs! as it is highly correlated with variables Attitude towards change, Willingness to adopt and Willingness to invest. The two variables Ownership of residence and Degree of satisfaction derived from the existing EETs are heavily loaded on factor six which is aptly named as ‘Dwelling characteristics!. Component seven which is closely correlated with Risk coverage, isk’. Government subsidies and Government regulations is named as ‘Attitude towards Component eight is closely correlated with variables related to government efforts like Government incentives, Government efforts in providing well structured markets for BETs and Adequacy of information about EETs and hence is named as ‘Government efforts’. Components nine and ten are closely correlated with only family size and qualification respectively and are named accordingly. 6.3 SUMMARY In order to achieve the objective of identifying the factors influencing the adoption of EETs and CHs in Indian urban households, Factor analysis was employed as a data reduction technique. After ensuring the factorability of the data, Principal Component Analysis method, which forms linear combination of observed variables, was used for factor extraction. This resulted in 10 factors being extracted, which were named appropriately by looking at their variables grouping and the factor loadings. These factors are: Financial status, Attitude towards EET, Awareness about energy and environment, Cost driven concern for environment, Willingness to adopt EETs, Dwelling characteristics, Attitude towards risk, Government efforts, Family size and Qualification. The factor scores of all these 10 factors were stored in the Data editor to be used for modeling Adoption of EETs and CHs which is explained in the ensuing chapter. 175