This paper presents the basic idea, design considerations and field test results for a novel concept of an energy storage system. The system is of the underground pumped hydro storage (UPHS) type where energy is stored by lifting a mass of soil through the pumping of water into an underground cavity. The cavity is formed by two impermeable membranes welded along the edges. A simple model captures the dynamics of the system revealing the importance of both visco-elastic and plastic effects for the cyclic loading of the soil. The results indicate that the efficiency of this new concept will be very close to that of the traditional pumped hydro storage (PHS) technology and the energy lost by deformation of the soil will be between 0.04 and 0.12% for a full scale system of 30 MW power and 200 MWh capacity. A key feature of the concept is the relatively price efficient design where the main cost is movement of soil. A cost analysis indicates that a full scale system will be economically viable when connected to the European power grid where the main revenue will come from selling ancillary services. The storage cost for a full scale 30 MW/200 MWh system is estimated to be approximately 5.3 EUR cent/kWh. The estimated cost of installed power is 1111 EUR/kW and the related cost of installed storage capacity is 208 EUR/kWh.