IEC 61850 offers significant advantages when compared against other substation communication protocols; in particular the replacement of analogue and binary signals with Ethernet messages reduces the cost of the system and improves flexibility and functionality. However, it also requires a new type of test bench suitable for the functional and performance testing of IEC 61850 compatible protection relays and systems. Test sets used in such applications need to have the functionality to perform coordinated and precisely synchronised tasks as a part of a distributed, system wide test facility. Methods for testing conventional protection relays will be reviewed and some of the issues that affect how we test the next generation of relays will be discussed; the paper will also investigate new approaches for testing IEC 61850 compatible relays based on the Real Time Digital Simulator (RTDS) and the OMICRON test set. The structure and implementation of a new RTDS system based on IEC 61850 standard are proposed. A test model connecting the RTDS system and the secondary digital devices will be presented. (5 pages)