The facility, Lerwick Power Station, will help to improve electricity supplies in the area. It will replace the current power station which is set to be decommissioned following the construction and commissioning of the new plant.
Some 400 jobs will be created during the construction phase of the project.
In a statement, Energy Minister Fergus Ewing said: "While we are working towards vastly increasing our renewable energy, Scotland still needs conventional, clean fossil fuel power to provide a steady supply of electricity. This could be met by new build plant, upgrades to existing plants or a combination of both.
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"The Shetland Islands have no connection to the UK National Grid and as such the electricity supply to both domestic and commercial properties is met predominantly by the existing power station.
"The generating capacity of the consented Power Station will be up to 120MWe. This increase in electrical capacity from 67MWe will allow the entire demand of Shetland to be met both now and will allow for future expansion of demand. The development is designed to utilise the heat produced during the electricity generating process, which could help Scotland further decarbonise its heating sector."
(JP/IT)
