In this paper, we performed thermodynamic energy balance analysis of the underground lined rock cavern for compressed air energy storage (CAES) using the results of multi-phase heat flow analysis to simulate complex groundwater-compressed air flow around the cavern as well as heat transfer to concrete linings and surrounding rock mass. Our energy balance analysis demonstrated that the energy loss for a daily compression and decompression cycle predominantly depends on the energy loss by heat conduction to the concrete linings and surrounding rock mass for a sufficiently air-tight system with low permeability of the concrete linings. Overall energy efficiency of the underground lined rock caverns for CAES was sensitive to air injection temperature, and the energy loss by heat conduction can be minimized by keeping the air injection temperature closer to the ambient temperature of the surroundings. In such a case, almost all the heat loss during compression phase was gained back in a subsequent decompression phase. Meanwhile, the influence of heat conductivity of the concrete linings to energy efficiency was negligible.