Start debugging this way:

1. Create a test PostgreSQL database on a different server and try to connect to that through Power BI. Use the default Power BI connector for PostreSQL. Is this working?
2. Now try to connect again to that test PostgreSQL database but this time through the SQL query. Is it working?
3. Now encrypt the test database with AES-128-CBC. Try to connect first with the official Power BI connector for PostgreSQL and then through the SQL query. Is it working with both?

This is how I would debug the whole thing