My Assumption is this;
Matter and Energy can not be created or destroyed, but they can be transmuted, something the Andalite Race seems fond of doing to everything.
So if Z-Space acts as I think it does, it can serve as a massive raw energy siphon.
And the morphing technology just might convert the energy into mass when needed, bleeding it back into Z-Space when its no logner needed.
Think of it as a combo of the Star Trek Replicator and the Stargate ZPM.