In the present work, the thermodynamic response of underground cavern reservoirs to charge/discharge cycles of compressed air energy storage (CAES) plants was studied. During a CAES plant operation, the cyclical air injection and withdrawal produce temperature and pressure fluctuations within the storage cavern. Predictions of these fluctuations are required for proper cavern design and for the selection of appropriate turbo-machinery. Based on the mass and energy conservation equations, numerical and approximate analytical solutions were derived for the air cavern temperature and pressure variations. Sensitivity analyses were conducted to identify the dominant parameters that affect the storage temperature and pressure fluctuations and the required storage volume. The heat transfer at the cavern walls was found to highly affect the air temperature and pressure variations as compared to adiabatic conditions. In essence, heat transfer reduces the temperature and pressure fluctuations during cavern charge and discharge and effectively leads to a higher storage capacity. Additionally, for realistic conditions, in each cycle, few percents of the injected energy are lost by conduction into the rocks. The principal thermal property that governs the heat transfer process is the rock effusivity. To reduce the required storage volume preference must be given to sites of rocks that have the largest thermal effusivity. Lower injected air temperatures also reduce the required storage volume, but increase the cooling costs. The injected temperature can also be used to control the cycle temperature extreme limits. It is evident from the results that the storage pressure ratio has a dominant effect on the required storage volume and should preferably range between 1.2 and 1.8. (C) 2012 Elsevier Ltd. All rights reserved.