Abstract In optimal PMU placement problem, a common assumption is that each PMU installed at a bus can measure the voltage phasor of the installed bus and the current phasors of all lines incident to the bus. However, available PMUs have limited number of channels and cannot measure the current phasors of all their incident lines. The aim of this paper is to recognize the effect of channel capacity of PMUs on their optimal placement for complete power system observability. Initially, the conventional full observability of power networks is formulated. Next, a modified algorithm based on integer linear programming model for the optimal placement of these types of PMUs is presented. The proposed formulation is also extended for assuring complete observability under different contingencies such as single PMU loss and single line outage. Moreover, the problem of combination of PMUs with different number of channels and varying costs in optimal PMU placement is investigated. Since the proposed optimization formulation is regarded to be a multiple-solution one, total measurement redundancy index is evaluated and the solution with the highest redundancy index is selected as the optimal solution. The proposed formulation is applied to several IEEE standard test systems and compared with the existing techniques.