Limited success in promoting improved energy sources, such as biogas, in rural areas of developing countries has been partly blamed on insufficient understanding of household energy use patterns. In this study, we assess the costs of energy generation from major energy sources (firewood and dung) in rural Ethiopia, as well as the economic potential of biogas as an alternative in addressing both energy and food security challenges. Results show that households in rural areas largely collect their own fuel, with female household members being mainly responsible for the chore. By investing in biogas plants, households could save time and energy, and have a supply of slurry that can be used as fertilizer in agricultural production. A cost-benefit analysis of biogas plants yields positive net present values for households collecting their own energy sources. Even higher net present values are obtained for households purchasing all of their energy needs; these households stand to gain significantly from the financial benefits of energy cost savings with biogas technology. Results are highly dependent on slurry being effectively used as a source of fertilizer and on the price of the replaced energy source. Thus the promotion of slurry use as fertilizer must be an integral part of a successful biogas programme. Another important issue is that at present, biogas plants are highly subsidized and thus the above conditions hold under the assumptions of subsidies. When analysed without subsidies, indicators are still positive, yet amortisation periods are significantly longer and close to the depreciation point, so that investment risks increase. (C) 2012 Elsevier Ltd. All rights reserved.