In this study, the concept of exergy is used to analyze and optimize a sensible heat cascade thermal energy storage system which is developed for storing exergy and later using it efficiently. The system is composed of a liquid-gas heat exchanger, an electrical heater, an insulated vessel, a large water bath as a storage liquid and air as the system gas. The units that should be improved are determined by evaluating the irreversibilities caused by viscous losses in the heat exchanger, heat transfer occurring in the storage, electrical heating, removal processes and mixing of the hot gases at the exit of the storage process with ambient air. First and second law efficiencies and irreversibility sources of the system are compared with the thermal energy storage system's having a unique energy resource. Removing time, optimum storage time and the number of transfer units of the heat exchanger are also determined for different operating conditions by minimizing the irreversibilities in the system. (C) 2002 Elsevier Science Ltd. All rights reserved.