Compressed air energy storage (CAES) is a large-scale technology that provides long-duration energy storage. It is promising for balancing the large-scale penetration of intermittent and dispersed sources of power, such as wind and solar power, into electric grids. The existing CAES plants utilize natural gas (NG) as fuel. However, China is rich in coal but is deficient in NG; therefore, a hybrid-fuel CAES is proposed and analyzed in this study. Based on the existing CAES plants, the hybrid-fuel CAES incorporates an external combustion heater into the power generation subsystem to heat the air from the recuperator and the air from the high-pressure air turbine. Coal is the fuel for the external combustion heater. The overall efficiency and exergy efficiency of the hybrid-fuel CAES are 61.18% and 59.84%, respectively. Given the same parameters, the cost of electricity (COE) of the hybrid-fuel CAES, which requires less NG, is $5.48/MW•h less than that of the gas-fuel CAES. Although the proposed CAES requires a relatively high investment in the current electricity system in North China, the proposed CAES will be likely to become competitive in the market, provided that the energy supplies are improved and the large scale grid-connection of wind power is realized.