Developing countries cannot get rid of the fate of relying on fossil energy development in the short term, so the low-carbon transformation must be carried out in the development process to achieve the goal of net zero emissions. This work proposed a novel hydrothermal combustion assisted fossil fuel in-situ gasification (HC-ISG) system combining renewable energy, supercritical hydrothermal combustion technology and supercritical water gasification technology. The system has the advantages of high thermal efficiency, high hydrogen yield, carbon dioxide utilization and storage, and landfill of hazardous waste. Firstly, based on the concept of energy grade, the effects of renewable energy and auxiliary fuel on the characteristics of energy grade change in HC-ISG system is studied. Then, the Gibbs free energy minimization method is conducted to discuss the effects of fossil fuels, oxidants, sub- and supercritical water on the key parameters of the system. The results indicated that for HC-ISG system, the energy grade and input amount of renewable energy have the optimal values. Compared with coke and methane, the system with methanol as an auxiliary fuel for hydrothermal combustion owned better the matching between energy quantity and energy grade. Moreover, increasing the reaction temperature could reduce the exergy destruction of the system and increase the energy grade change of the input energy. When the combustion coefficient was 0.2–0.3, the molar fraction of H2 reached the maximum value. When fossil fuel with high carbon content was used, the maximum H2 yield could reach 89.4 mol/kg, and the carbon emission was 3.9 kg CO2/kg H2, so the HC-ISG system could produce clean hydrogen. The system proposed in this study may provide a promising method for efficient and low-carbon in-situ conversion of fossil energy to hydrogen production.