Dear QEntanglement, the photons - e.g. cosmic microwave background photons - are increasing their wavelength proportional to the linear expansion of the Universe, $a(t)$, and their energy correspondingly drops as $1/a(t)$. Where does the energy go? It just disappears.

**Energy is not conserved in cosmology.**

Much more generally, the total energy conservation law becomes either invalid or vacuous in general relativity unless one guarantees that physics occurs in an asymptotically flat - or another asymptotically static - Universe. That's because the energy conservation law arises from the time-translational symmetry, via Noether's theorem, and this symmetry is broken in generic situations in general relativity. See

> http://motls.blogspot.com/2010/08/why-and-how-energy-is-not-conserved-in.html<br>
> **Why energy is not conserved in cosmology**

Cosmic inflation is the most extreme example - the energy density stays *constant* (a version of the cosmological *constant* with a very high value) but the total volume of the Universe exponentially grows, so the total energy exponential grows, too. That's why Alan Guth, the main father of inflation, said that "the Universe is the ultimate free lunch".