  The transformation of the electricity sector is a main element of the
transition to a decarbonized economy. Conventional generators powered by fossil
fuels have to be replaced by variable renewable energy (VRE) sources in
combination with electricity storage and other options for providing temporal
flexibility. We discuss the market dynamics of increasing VRE penetration and
their integration in the electricity system. We describe the merit-order effect
(decline of wholesale electricity prices as VRE penetration increases) and the
cannibalization effect (decline of VRE value as their penetration increases).
We further review the role of electricity storage and other flexibility options
for integrating variable renewables, and how storage can contribute to
mitigating the two mentioned effects. We also use a stylized open-source model
to provide some graphical intuition on this. While relatively high shares of
VRE are achievable with moderate amounts of electricity storage, the role of
long-term storage increases as the VRE share approaches 100%.
