What If

[Sephiroth]

Looks pretty renewable to me:
Midgar[1].jpg

I'm thinking that when they're converting mako into other energies, it's separating the usable energy from the spirit-essence, the latter of which is just a by-product and builds up at a high concentration...resulting in huge materia formation.

My explanation is the official explanation from the Ultimania Omega. So it is definitely the truth. The planet cannot grow because there is no new knowledge to get since the energy does not go back to it when it is continuesly drained by the Mako Reactors. So even when people or other beings with new knowledge die the planet does not have anything from it, cannot grow and this is bad for it.

I ain't no expert scientist or nothing

Final Fantasy VII is no science either.