A key approach to large renewable power management is based on implementing storage technologies, including batteries, power-to-gas, and compressed air energy storage (CAES). This work presents the preliminary design and performance assessment of an innovative type of CAES, based on underwater compressed air energy storage (UW-CAES) volumes and intended for installation in the proximity of deep-water seas or lakes. The UW-CAES works with constant hydrostatic pressure storage and variable volumes. The proposed system is adiabatic, not using any fuel to increase the air temperature before expansion; a sufficient turbine inlet temperature (TIT) is instead obtained through a thermal energy storage (TES) system which recovers the compression heat. The system includes (i) a set of turbomachines (modular multistage compressor, with partial intercooling; expansion turbine); (ii) a TES system with different temperature levels designed to recover a large fraction of the compression heat, allowing the subsequent heating of air prior to the expansion phase; (iii) an underwater modular compressed air storage, conceived as a network of rigid but open tanks lying on the seabed and allowing a variable-volume and constant pressure operation. The compressor operates at variable loads, following an oscillating renewable power input, according to strategies oriented to improve the overall system dispatchability; the expander can be designed to work either at full load, thanks to the stability of the air flowrate and of the TIT guaranteed by the thermal storage, or at variable load. This paper first discusses in detail the sizing and off-design characterization of the overall system; then it simulates a case study where the UW-CAES is coupled to a wind farm for peak shaving and dispatchability enhancement, evaluating the impact of a realistic power input on performances and plant flexibility. Although the assessment shall be considered preliminary, it is shown that round-trip efficiency (RTE) in the range of 75–80% can be obtained depending on the compressor section configuration, making the UW-CAES a promising technology compared to electrochemical and pumped-hydrostorage systems. The technology is also applied to perform peak-shaving of the electricity production from an off-shore wind farm; annual simulations, based on realistic wind data and considering part-load operation, result in global RTE around 75% with a 10–15% reduction in the average unplanned energy injection in the electric grid. The investigated case study provides an example of the potential of this system in providing power output peak shaving when coupled with an intermittent and nonpredictable energy source.