A modular compressed air energy storage system includes modular low pressure and high pressure subsystems coupled together with interstage pipes. Each of the subsystems includes a hydraulic vessel adapted to contain a heat transfer liquid and having a piston disposed therein for horizontal reciprocating movement. First and second pressure vessels are coupled to the hydraulic vessel on opposite sides of the piston, each adapted to contain the heat transfer liquid and/or a gas. First and second heat transfer devices are respectively disposed within upper regions of the pressure vessels. The piston is moveable in a first direction to displace at least some of the heat transfer liquid from the hydraulic vessel to the first pressure vessel and is moveable in a second direction to displace at least some of the heat transfer liquid from the hydraulic vessel to the second pressure vessel.