PARIS, Oct 25 (Reuters) - The International Energy Agency (IEA) raised its forecast for renewable energy growth over the next five years, saying on Tuesday it expects the share of renewables in the world to rise to 28 percent by 2021 from 23 percent generated in 2015.

Growth in renewables is being driven by improved policy changes in countries such as the United States, China and Mexico; and a sharp fall in costs, the agency said in its medium-term market report.

Global renewable electricity capacity is expected to rise by 42 percent or 825 gigawatts (GW) by 2021, the IEA said, 13 percent higher than an estimate last year.

“We are witnessing a transformation of global power markets led by renewables,” IEA executive director Fatih Birol said.

The IEA, the West’s leading energy forecaster, had been criticised by environment campaigners in recent years for underestimating the growth of renewables and over-emphasising the continued role of fossil fuel.

On Tuesday, the IEA said the US alone represented close to half of its forecast revision due to the medium-term extension of federal tax credits, which are set to boost solar PV and onshore wind expansion.

However, “China remains the undisputable global leader of renewable energy expansion, representing close to 40 percent of growth”, the agency said, adding that China’s air pollution concerns and a favourable policy environment are driving growth.

“In 2021, more than one-third of global cumulative solar PV and onshore wind capacity will be located in China,” it said.

Renewable energy - which for the IEA includes hydropower, solar, wind, bioenergy, wave and tidal - will account for more than 28 percent of global power generation by 2021, up from 23 percent in 2015, the agency said.

About 60 percent of the increase in global electricity generation in the five years to 2021 will come from renewables, rapidly closing the gap with coal, the agency said.

It was expected to exceed 7,600 terrawatt hours (TWh) the equivalent to the total electricity generation of the US and the European Union put together today.

In terms of installed capacity, renewables surpassed coal last year to become the largest power source in the world, the IEA said.

Despite the rapid growth and a record expansion in 2015, with renewables representing more than half the new power capacity around the world at a record 153 gigawatt (GW), the IEA said growth was still mostly concentrated in solar and wind.

Sustained policy support, expansion into newer markets, financial support and new technological breakthroughs will continue to drive down costs.

The IEA said government support was still needed because policy uncertainties persist in many countries and this was hampering investments. However, accelerated growth would put the world on a firmer path to meeting long-term climate goals.

“Even these higher expectations remain modest compared with the huge untapped potential of renewables,” Birol said. (Reporting by Bate Felix; editing by Michel Rose and Susan Thomas)