The cyclic operation of a molten-salt thermocline tank is simulated to investigate the influence of internal granule diameter and external convection losses on tank performance. Practical constraints limiting thermocline tank height are taken into account. The authors two-temperature model, developed in earlier work (Solar Energy, 84, 974-985, 2010) for the analysis of heat transfer and fluid flow in the thermocline tank, is extended to monitor entropy generation and exergy transport. Storage performance is measured in terms of first- and second-law efficiency definitions, as well as a first-law efficiency used in conjunction with an outflow temperature criterion. Reducing the diameter of the fillerbed granules improves the thermocline tank performance by sustaining higher molten-salt outflow temperatures throughout the discharge phase of the cycle, which results in greater operational efficiency. External convection losses strongly influence entropy generation inside the tank fillerbed due to the development of radial temperature gradients and increased irreversible thermal diffusion. Convection losses also result in lower tank efficiencies due to the reduction of hot molten salt available inside the tank. A comparison of the different efficiency definitions employed in this work reveal that the ad hoc outflow temperature criterion used in past studies provides an overly conservative assessment of thermocline performance. (C) 2012 Elsevier Ltd. All rights reserved.