  To reach ambitious European CO$_2$ emission reduction targets, most scenarios
of future European electricity systems rely on large shares of wind and solar
photovoltaic power generation. We interpolate between two concepts for
balancing the variability of these renewable sources: balancing at continental
scales using the transmission grid and balancing locally with storage. This
interpolation is done by systematically restricting transmission capacities
from the optimum level to zero. We run techno-economic cost optimizations for
the capacity investment and dispatch of wind, solar, hydroelectricity, natural
gas power generation and transmission, as well as storage options such as
pumped-hydro, battery, and hydrogen storage. The simulations assume a 95%
CO$_2$ emission reduction compared to 1990, and are run over a full historical
year of weather and electricity demand for 30 European countries. In the
cost-optimal system with high levels of transmission expansion, energy
generation is dominated by wind (65%) and hydro (15%), with average system
costs comparable to today's system. Restricting transmission shifts the balance
in favour of solar and storage, driving up costs by a third. As the restriction
is relaxed, 85% of the cost benefits of the optimal grid expansion can be
captured already with only 44% of the transmission volume.
