Probably totally depends on the hotel. I booked the wrong rate at the Sheraton Park Lane London. I meant to book a free award stay and ended up booking the prepaid rate. I had to call the hotel and negotiate with the girl in charge of bookings to get her to drop it to a cash and points rate. But at no point would she let me cancel it and change it to the points booking. Said no way. But this was some random Sheraton. Also, my credit card had not yet been charged so probably could just cancel it, but it was probably more the hotel trying to stick to its principles.

At a higher end hotel, Vedema, we had a prepaid reservation and arrived one day late due to a flight cancellation. The hotel would not issue a refund, but did allow us to use the amount of money lost for the one night towards incidentals. That was a lot of euros to spend on incidentals. We ended up booking a night at Mystique with some of the money so if anything, they managed to get us to spend more that we had anticipated.

Good luck, hope you get a better solution.