A nonlocal continuum theory of solvation is applied using an oscillating dielectric function with spatial dispersion. It is found that a convergent solution cannot be calculated using a model of a fixed solute cavity inside the solvent continuum. This is attributed to the fact that the dielectric oscillations appear as a result of coupling between polarization and density fluctuations, contradicting the concept of a fixed cavity, The theory is corrected by allowing the cavity size to vary. A cavitation energy and an interaction between the medium reaction field and the cavity size are added to the solvation free energy, and a new theory obtained by a variational treatment. The interaction term enables convergent solutions to become attainable, resulting in an oscillating electrostatic solvation energy as a function of cavity radius, the cavitation term enables these oscillations to be smoothed out, resulting in a regular, monotonic solvation free energy.