In recent years, interest has increased in new renewable energy solutions for climate change mitigation and increasing the efficiency and sustainability of water systems. Hydropower still has the biggest share due to its compatibility, reliability and flexibility. This study presents one such technology recently examined at Instituto Superior Técnico based on a transient-flow induced compressed air energy storage (TI-CAES) system, which takes advantage of a compressed air vessel (CAV). The CAV can produce extra required pressure head, by compressing air, to be used for either hydropower generation using a water turbine in a gravity system or to be exploited in a pumping system. The results show a controlled behaviour of the system in storing the pressure surge as compressed air inside a vessel. Considerable power values are achieved as well, while the input work is practically neglected. Higher power values are attained for bigger air volumes. The TI-CAES offers an efficient and flexible solution that can be exploited in exiting water systems without putting the system at risk. The induced transients in the compressed air allow a constant outflow discharge characteristic, making the energy storage available in the CAV to be used as a pump storage hydropower solution.