The exhaust gas from an internal combustion engine carries away about 30% of the heat of combustion. The energy available in the exit stream of many energy conversion devices goes as waste. The major technical constraint that prevents successful implementation of waste heat recovery is due to intermittent and time mismatched demand for and availability of energy. The present work deals with the use of exergy as an efficient tool to measure the quantity and quality of energy extracted from a diesel engine and stored in a combined sensible and latent heat storage system. This analysis is utilized to identify the sources of losses in useful energy within the components of the system considered, and provides a more realistic and meaningful assessment than the conventional energy analysis. The energy and exergy balance for the overall system is quantified and illustrated using energy and exergy flow diagrams. In order to study the discharge process in a thermal storage system, an illustrative example with two different cases is considered and analyzed, to quantify the destruction of exergy associated with the discharging process. The need for promoting exergy analysis through policy decision in the context of energy and environment crisis is also emphasized. (C) 2011 Elsevier Ltd. All rights reserved.