The invention discloses a distributed energy system applying alternative fuel and a fuel control method thereof. The distributed energy system involves a gas intake channel, a gas exhaust channel, a first fuel gas injection valve, a second fuel gas injection valve, a hydrogen dryer, an gas intake valve, an gas exhaust valve, a piston, a photothermal solar assembly, a metal oxide catalytic device,a hydrogen collection device, a gas intake manifold, a gas fume hot water type lithium bromide unit, a gas fume hot water type heat exchanger, a fume exhaust pipeline, an internal combustion engine generator set, an air cylinder and a gas fume pipeline. A solar photovoltaic photothermal array and a catalyst are used for decomposing water at high temperature to generate hydrogen, the hydrogen and natural gas are used as fuel of the internal combustion generator set, the hydrogen is injected at the gas intake manifold, the hydrogen enters the gas intake channel after being dried, and the economical efficiency of distributed energy source is improved by utilizing the alternative fuel; the fume exhaust of the internal combustion generator set firstly passes through the gas fume hot water typelithium bromide unit, and the acting gas fume is exhausted to the atmosphere after passing through the gas fume hot water type heat exchanger, so that the step utilization of the energy is realized.