Yes, it is possible to refresh your machine while it is encrypted.
Please see the link below to start the process,
I hope this will help you out, please read the documents carefully before you start Refresh.
Thanks for this helpful document.
Just another thing to ask. I was tryign to Refresh OS using EpeWinUpgradeTool.exe. When I look at 2nd stage - booting on WIndows PE and 3rd stage - Booting on new Windows OS, I want to know where will be the windows upgrade will take place?