Is gravitational energy released when a body contracts?
It is correct. Contracting stars heat up due to their own contraction. This justifies the initial temperature raise in a star, before fusion begins in earnest.

Kelvin was not 100% wrong, it's just that fusion, over the life time of the star, makes much, much more energy than contraction. The collapse heats up the star at the very beginning, then fusion takes over and makes essentially all the heat you observe.

This is also true of gas giant planets. Even a tiny amount of contraction may raise their temperature measurably. E.g., Jupiter radiates more energy than it receives from the Sun - this is due to contraction, at a rate of 2 cm / year (diameter).

TLDR: Gravitational energy becomes heat.