Two properties needs to be set in Schema i.e. RichText to TRUE and RichTextMode to FullHtml. Those property you can't set it directly via Set-PnPField so you need to get existing schema first and you need to update two attribute accordingly.
You can try below script to do so.
$libraryURL = "Shared Documents"
$internalName = "TestField2"
$field = Get-PnPField -List $libraryURL -Identity $internalName
[xml]$schemaXml = $field.SchemaXml
$schemaXml.Field.SetAttribute("RichTextMode", "FullHtml")
$schemaXml.Field.SetAttribute("RichText", "TRUE")
Set-PnPField -List $libraryURL -Identity $internalName -Values @{SchemaXml=$schemaXml.OuterXml}
Took hint from https://github.com/pnp/PnP-PowerShell/issues/2701#issuecomment-637561473