According to SSE, which has submitted the proposals, the power station would run initially on light fuel oil but could also be powered by natural gas if a supply becomes available in the future.
The proposed power station will be located north of Lerwick, near Rova Head.
Jim Lawrie, project development manager, said: “The existing power station in Lerwick has served the islands well since it was first commissioned in 1953. It is now coming towards the end of its operational life and a new solution is needed to keep the lights on for Shetland homes and businesses.
“We are seeking planning consent for a power station with capacity up to 120MW, capable of running on either light fuel oil or natural gas.Â
He added: “This approach gives us the flexibility we need to meet Shetland’s full electricity needs under all possible circumstances. It also means the environmental studies that have been carried out are based upon the largest possible impacts from the site.”