If you only refund the amount of the item you'll lose your fees, unless you deduct that from their refund as well. The only way to get your fees back would be to cancel the transaction but that'd mean they automatically get refunded the postage amount.

If they did a claim they might get the postage back as well as the rest so it might be worth thinking about whether you're prepared to lose some of your costs. If your postage cost less than the fees you might be best to cancel the transaction citing problem with buyer's address.

Maybe there's a way to recoup everything but I don't know how. You may have to just settle for the 'best case' and be thankful that you didn't lose the lot.