Compressed air energy storage (CAES) uses low cost off-peak energy to compress air and pump it into pressurised underground storage. Expanding the air through a modified form of gas turbine generates electrical energy when required. While generating power, a CAES station consumes approximately one-third of the gas required for the equivalent installed capacity of a conventional gas turbine. Air can be stored in underground rock caverns, caverns in salt domes, or in aquifers. Existing CAES power stations use caverns mined out of salt domes. Aquifer storage for CAES has been proposed, but not yet implemented. The groundwater in the aquifer would be displaced during air injection and when required the air would be extracted using the natural hydro-static pressure. Victoria has no salt domes, but has aquifers onshore in the Gippsland Basin with geological dome structures of suitable depth, discovery pressure, porosity, permeability and caprock for CAES development. Field tests costing several million dollars would be required to prove the suitability. The most suitable aquifer is near Seaspray, where several dome structures exist. The aquifer, comprising of coarse sands capped by coal and mudstone, is some 600 metres deep with a hydrostatic pressure of 6.3 MPa. Computer simulation of injection and extraction of air from the aquifer under various combinations of horizontal and vertical wells, permeability and tubing head pressures indicated the largest aquifer structure had the capacity to sustain a 300 MW station. A well field comprising of 24 directionally driven wells with a horizontal exposure to the aquifer would achieve the air flow rates required. Using plant similar to that recently installed at McIntosh Alabama USA, would mean high capital costs compared to standard gas turbine plant. However, a review of modem gas turbines indicated that they could be easily and economically adaptated to CAES duty. Adapting a 120 MW gas turbine would give 344 MW output. A separate air compression plant would be used. Economic evaluations indicate that, for gas prices above $1.95 per GJ, a 344 MW CAES plant is more economic for intermediate/reserve load duty than simple cycle gas turbines.