Energy transformation or energy conversion is the process of changing one form of energy to another. In physics, the term energy describes the capacity to produce certain changes within a system, without regard to limitations in transformation imposed by entropy. Changes in total energy of systems can only be accomplished by adding or subtracting energy from them, as energy is a quantity which is conserved, according to the first law of thermodynamics. According to special relativity, changes in the energy of systems will also coincide with changes in the system's mass, and the total amount of mass of a system is a measure of its energy.
Energy in a system may be transformed so that it resides in a different state, or a different type of energy. Energy in many states may be used to do many varieties of physical work. Energy may be used in natural processes or machines, or else to provide some service to society (such as heat, light, or motion). For example, an internal combustion engine converts the potential chemical energy in gasoline and oxygen into heat, which is then transformed into the propulsive energy (kinetic energy that moves a vehicle). A solar cell converts solar radiation into electrical energy that can then be used to light a bulb or power a computer.
The generic name for a device which converts energy from one form to another, is a transducer.
In general, most types of energy, save for thermal energy, may be converted efficiently to any other kind of energy. Sometimes this occurs with an efficiency of essentially 100%, such as when potential energy is converted to kinetic energy as an object falls in vacuum, or when it orbits nearer or farther from another object, in space. Conversion of other types of energies to heat may also occurs with nearly perfect efficiency (many types of friction do this).
Exceptions for perfect conversion efficiency (even for isolated systems) occur when energy has already been partly distributed among many available quantum states for a collection of particles, which are freely allowed to explore any state of momentum and position (phase space). In such circumstances, a measure called entropy, or evening-out of energy distribution in such states, dictates that future states of the system must be of at least equal evenness in energy distribution. (There is no way, taking the universe as a whole, to collect energy into fewer states, once it has spread to them).
A consequence of this requirement is that there are limitations to the efficiency with which thermal energy can be converted to other kinds of energy, since thermal energy in equilibrium at a given temperature already represents the maximal evening-out of energy between all possible states. Such energy is sometimes considered "degraded energy," because it is not entirely usable. The second law of thermodynamics is a way of stating that, for this reason, thermal energy in a system may be converted to other kinds of energy with efficiencies approaching 100%, only if the entropy (even-ness or disorder) of the universe is increased by other means, to compensate for the decrease in entropy associated with the disappearance of the thermal energy and its entropy content. Otherwise, only a part of thermal energy may be converted to other kinds of energy (and thus, useful work), since the remainder of the heat must be reserved to be transferred to a thermal reservoir at a lower temperature, in such a way that the increase in entropy for this process more than compensates for the entropy decrease associated with transformation of the rest of the heat into other types of energy.
Read more about Energy Conversion: History of Energy Transformation From The Early Universe